A change of control provision gives a party certain rights under a contract, such as the right to receive payment, require consent, or terminate the contract, in the event of a specified trigger. Triggers can relate to a change in ownership or control of a counterparty, changes in policies or key personnel, etc. Change of control provisions help to ensure that an agreement does not devolve into a disadvantageous relationship between parties. Because of the significant impact a change of control provision can have on both parties, it is important that these provisions be strategically negotiated and that appropriate diligence is taken to understand any existing provisions before they are triggered.
FERC, CFTC, and State Energy Law Developments
Care and diligence must be used when crafting disclosure schedules in merger and acquisition documents. Unclear or incomplete disclosure schedules can have drastic implications for future litigation. Poorly crafted disclosure schedules can lead not only to indemnity litigation, but often lead to fraud and breach of warranty claims.
In energy contracts, there is a need for specificity in arbitration provisions, particularly in the delegation of arbitrability questions to the arbitrator. Because of the high stakes involved in contracts for energy production, transportation, refining, fractionation, mergers and acquisitions, and so on, parties are frequently willing to devote substantial resources to determine how a potential dispute should be resolved.
An earnout provision in mergers and acquisitions contracts entitles the seller of the target company to additional compensation in the future if the target performs well after closing. Such a provision is often used when a gap exists between the buyer’s lower valuation and the seller’s higher valuation. Essentially, it is a way for the buyer to say, “if you think your company is really worth as much as you say it is, prove it.”
Contracting parties sometimes attempt to rely on merger clauses to avoid future claims arising from reliance on extra-contractual representations such as fraudulent inducement. But in Texas, the inclusion of a standard merger clause does not preclude such a claim. See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 327 (Tex. 2011).
Choice of law and forum provisions are standard clauses often found buried in the back of a contract, easily overlooked and frequently ignored. Although these provisions do not typically come up unless there is a dispute between the parties, they should not be an afterthought for drafters because they can play a significant role in the outcome of a dispute.
Indemnity clauses can give rise to a duty to defend or duty to indemnify. This post reviews some basics of when such duties arise under Texas, New York, and California law: Can the duty to defend or to indemnify be determined before all losses are tallied?
Indemnity clauses are an integral tool used regularly in energy contracts and master service agreements. Indemnity is an obligation by one party to make another whole for a loss or damage, and indemnity clauses are useful tools that allow companies to mitigate and allocate risk that can arise from numerous issues in producing, transporting, refining, and selling oil and gas and other energy resources.
When the term “prevailing party” is not carefully defined, it can lead to a result where your company or client is left without the possibility of recovering attorney’s fees or having to pay the other side’s attorney’s fees. The term “prevailing party” is typically defined in the context of the overall contract with the goal of permitting the recovery attorney’s fees in the event of a dispute.
If you’ve ever been involved in negotiating a contract, whether for the provision of services or a $200 million energy transaction, you’ve likely seen a merger clause. They are typically universal in their use and, while the language may differ, they generally state the same thing: the written contract represents the entire agreement between the parties. However, using boilerplate merger clauses versus customized merger clauses can create costly problems down the road if not drafted with enough specificity, particularly in energy transactions.